On 1 January this year, new rules from the Financial Services Authority (FSA) came into effect which have changed the way financial advisory companies operate. Known as the Retail Distribution Review (RDR), the objective was to raise professional standards in the industry, introduce greater clarity between the different services available and make the cost of advice very clear to the consumer.
We spoke to Mark Ryan of Professional Solutions IFA Ltd about what this means in practice to you and your money:
“The principle change in the financial services marketplace is in the way that advisors charge for services. Under the new rules, pension providers and fund managers are banned from paying commission. Instead, advisers are now required to agree charges for the work they do and take payments under a new system known as adviser charging or customer agreed remuneration. They will still be able to take payment from the pension or fund – for example, a set amount upfront and then an on-going charge – but this must be agreed with you. The actual product provider will have no role or influence in setting the level of the charges for advice. This is to remove any risk of bias in the advisor’s recommendations. In terms of charging, the regulator’s basic requirements are clear – that advisors set their own charging structure for the advice they give and the level of service they provide; that they disclose their charges up front using a price list or tariff; and, where an ongoing fee is levied, they must provide an ongoing service for this fee.
Note however that commission will continue to be paid on certain insurance products, such as critical illness insurance, income protection insurance and life insurance, though your adviser must disclose this commission to you.
The second tenet of the RDR is greater transparency of services; in other words, it must be clear how much of the market
your advisor can help with – for example, is it all aspects of investments, or a limited area. An independent advisor is able to advise on all types of products that you can invest in, whereas a restricted advisor will either specialise in a particular area, for example, pensions, or will offer limited advice on a smaller range of products.
Finally, the third element of the RDR requires advisors to meet a higher standard of qualification than that previously
required, as well as maintaining that level of knowledge and keeping it current with Continuous Professional Development (CPD) and signing up to an ethical code which requires them to treat you, the consumer, fairly.
All in all, these measures should collectively inspire reassurance in the general public that their advisor is offering qualified and impartial financial advice with a crystal clear pricing policy”
The FSA has now become two separate regulatory authorities – the body regulating the Financial Services industry is the FCA (Financial Conduct Authority) www.fac.org.uk”
Ticking the boxes…
The advisor’s professional standards checklist insists that advisors:
– Subscribe to the FSA code of practice
– Hold a higher standard qualification for giving financial advice
– Spend at least 35 hours a year learning as part of continuing professional development
– Hold a Statement of Professional Standing (SPS0) as evidence that they are meeting the standards, which must be issued by an accredited body